While browsing through many investment vehicles, you may have come across the word penny stocks. If you are interested in learning more about penny stocks, then you have come to the right place. This article is going to cover the subject of penny stocks, how do investors make money from it and the risk involved.

What Are Penny Stocks?

By definition, penny stocks are stocks that are being traded at prices below $5. People usually buy penny stocks for the same reason of buying regular stocks, which is to buy low and sell high.

Penny stocks are usually stocks from companies that are considered small to mid caps. The key difference between penny stocks and regular stocks is volatility. It is the reason why some investors tend to avoid penny stocks, and it is the same reason why some are drawn to them. Volatility in investing can be a good or bad thing in investing. It all depends on how you look at it.

With penny stocks, it is possible to double your money in a single day; while it may take weeks to years before your money doubles with regular stocks. As an example, it would be a lot easier for a penny stock priced at one cent per share to push up to two cents per share than a $15 stock turning into a $30 stock in a single day.

What Are Penny Stocks? – How to Make Money With Them

As mentioned before, some investors are drawn to penny stocks because of the huge price swings. Most investors make money by buying low, let the price swing big and sell it at a higher price. The concept may sound easy, but it is harder than it sounds.

A lot of investors try to invest money in penny stocks but not a lot them are making money. In fact, a lot of them have lost their shirts. The main concept that you need to be cautious is – if it's possible to double your money in a single day, then it is also possible to lose all your money given the same time frame. To make money in penny stocks, you must have education, experience and discipline.

What Are Penny Stocks? – A Few Success Stories

Concur Technologies (CNQR) – a software company that developed software that helps companies analyzes track and integrate travel and expense data. A crash in the Nasdaq has plummeted their stocks to a mere 31 cents per share. However, they have turned their failure to success, and those very same shares have reached the price of $66 at one point in time.

General Growth Properties – a real estate investment trust company that has fallen victim to the recent financial crisis. Their stock has plummeted to as low as 59 cents per share. As things turned around for the company, the shares went up astronomically to $19.50.

Conclusion to Penny Stocks

Penny stocks are stocks that are trading for $5 and below. These kinds of stocks are typically volatile. This means you can double your money at a very short time period, and may also lose all your money with the same time frame. Contrary to popular belief that penny stocks are worthless, there are a lot of penny stocks success stories, and the examples above are just a few.

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